Agriculture Subsidies Still Causing Friction

0 Comments | Insight on the News, March 15, 2004

Byline: Jamie Dettmer, INSIGHT

Agriculture Subsidies Still Causing Friction

The farm war pitching the United States and the European Union (EU) is heating up once again, with both sides accusing the other of subsidizing their farmers and distorting the international market. In February, U.S. Trade Representative Robert Zoellick fired a firm shot across the bow of the EU, warning that a July deadline for ending export subsidies needs to be met by Brussels.

Zoellick says the United States is ready to make concessions in response. "Let's stop fooling around here, let's eliminate them all [export subsidies]," Zoellick said. World Trade Organization (WTO) talks in Cancun, Mexico, in September 2003 collapsed amid rows about rich countries' agricultural subsidies.

Shortly before Zoellick's remarks, African ministers met European and American representatives to try to find ways of restarting the stalled WTO negotiations. The ministers repeated their call for the EU and the United States to open up their food markets to Third World countries.

Zoellick says the United States is prepared to scrap part of its export-credit system for American farmers. But European officials remain doubtful that the Bush administration could deliver on that promise, especially in an election year when the farm vote could be crucial in a close contest with the Democrats.

Energy Prices Could Signal Inflation Jump

How long will the U.S. Federal Reserve be able to avoid hiking interest rates? That's the question Wall Street is asking in the wake of the Labor Department's report of a jump in the Consumer Price Index, the government's most scrutinized inflation barometer.

Sharply higher costs for gasoline and other energy products pushed up consumer prices in January by 0.5 percent, the largest increase in almost a year. In December, prices rose by a mild 0.2 percent.

On a brighter price-inflation note, the "core" rate of inflation, which excludes volatile energy and food prices, increased by just 0.2 percent in January. That prompted optimists to maintain that prices for many goods and services remain stable and gave credence to the view of Federal Reserve Chairman Alan Greenspan and other economists that inflation is not currently a threat to the economy.

"People's purchasing power is still very strong," said Mark Zandi, chief economist at Economy.com. "Other than the surge in energy prices, inflation is tame. But that's the most visible price for many people. They are getting hit with higher prices at the pump and seeing their home-heating bills go up, and they don't know what economists are talking about that inflation is low."

Zandi and others believe Federal Reserve policymakers still have considerable leeway to leave short-term interest rates at their 45-year low of 1 percent. But other economists argue that energy price hikes are a harbinger of inflation increases around the corner and that the Fed will have little alternative to nudging up short-term rates later this year in a bid to nip inflation in the bud.

While Greenspan has been highly optimistic on the inflation front in recent weeks, he has said that he will keep a close eye on rising energy prices, especially for natural gas and gasoline.

Skilling Charges Give Reason to Celebrate

For the 15,000 Enron workers who lost their jobs and for investors who lost billions of dollars, the sight of former chief executive officer Jeffrey K. Skilling surrendering in mid-February to FBI agents must have prompted some sense of satisfaction. For more than two years now, former employees of the Texas-based energy giant had feared that Skilling was going to escape a legal reckoning for his role in the collapse of their company.

They weren't the only ones worried. Some of the Justice Department attorneys working on the Enron case also feared that they might not be able to "nail Skilling," as one member of the Enron Task Force told the business.

There was clear relief on the face of Deputy Attorney General James B. Comey when he announced at a crowded press conference in Washington the charges against Skilling. "The Skilling indictment demonstrates, in no uncertain terms, that no executive is too prominent or too powerful and no scheme to defraud is too complex or too fancy to avoid the long arm of the law." He referred to Skilling as "THE guy at Enron."

Skilling has pleaded not guilty to all 42 counts of fraud, conspiracy and insider trading with which he is charged. His lead lawyer, Daniel Petrocelli, says his client will fight vigorously in a trial that is likely to take place next year.

The charging of Skilling is important to the Bush administration. The Democrats likely will redouble their efforts this election season to tar the president with the brush of crony capitalism and to highlight George W. Bush's ties to former Enron chairman Kenneth Lay, the other guy at a company that was transformed from a stolid pipeline firm into an electronic-trading powerhouse. With Skilling now charged, some Justice insiders say the political pressure is on to prosecute Lay, too. "There aren't only moral reasons for this but election ones as well," said a Justice Department attorney.